Dundee grabs Boliden’s Breakwater stake (November 21, 2005)

Dundee Corp. (DBC.SV.A-T) has acquired another 18 million shares in zinc miner Breakwater Resources (BWR-T).

The shares were purchased at 38 apiece via a private transaction with Swedish-based Boliden (BLS-T). The shares originally comprised part of the compensation Breakwater paid for Boliden’s Myra Falls zinc-copper mine on Vancouver Island. Boliden retains 5 million warrants, with each good for one Breakwater share at $1 apiece until Jan. 28, 2009.

Dundee’s acquisition boosts its holding in Breakwater to nearly 73.1 million shares, for a 19.7% interest. Assuming the conversion of some 31.8 million warrants, that stake would climb to around 26.1%.

Dundee says the shares were acquired for investment purposes, and that its interest level may be increased or decreased in the future.

Breakwater has four producing zinc mines: Myra Falls in British Columbia; Bougrine in Tunisia; El Mochito in Honduras; and El Toqui in Chile. In 2004, the mines combined to produce 375 million lbs. zinc, 18 million lbs. copper, 32 million lbs. lead, 2.5 million oz. silver and 56,400 oz. gold.

In September, Breakwater secured a 23,200-oz. gold loan from Natexis Banques Populaires, based in France. Breakwater monetized the gold to the tune of around US$10 million. The proceeds will be applied to reclamation obligations, working capital requirements and general corporate purposes at the Myra Falls mine.

The facility bears interest at a rate of 2.9% annually, and will be repaid in six equal instalments of physical gold over 13 months. Myra Falls’ copper, zinc and gold concentrate inventories and related accounts receivables will act as security for the loan.

The company also concluded a $1.38-million private placement involving 3 million flow-through shares at 46 per share. The proceeds will fund exploration around the formerly producing Bouchard-Hbert mine and Langlois mine, which is currently under care and maintenance.

Breakwater has budgeted $700,000 for line-cutting, geophysics and diamond drilling at Bouchard-Hbert. Another $540,000 will be spent exploring outside the company’s existing mine licence at Langlois.

In Chile, the company recently updated the resource estimate for the Concordia deposit at the El Toqui mine. Indicated resources there total 816,000 tonnes running 10.6% zinc, 4.7% lead and 73 grams silver per tonne. Another 1.05 million tonnes of inferred material grades 9.6% zinc, 5.6% lead and 64 grams silver.

The Concordia deposit remains open to the south and southeast. Exploration drilling will continue into 2006. Infill drilling is also planned with an eye toward boosting the current resources to reserves. Plans call for continued metallurgical testing to determine the best way to process Concordia material in the existing mill. Breakwater says mineralization at Concordia is very different from other areas at El Toqui, as it contains high concentrations of lead and silver.

Pending positive results, a feasibility study would follow by the end of the second quarter of 2006.

So far, Breakwater has sunk some 10,631 metres worth of drilling in 74 holes at Concordia. Highlights from the latest batch of holes include:

– hole 72 — 12.7 metres (true thickness; beginning 151 metres below surface) grading 18.3% zinc, 7.6% lead, 0.5% copper, 117 grams silver;

– hole 73 — 3.8 metres (from 131.7 metres) averaging 18.7% zinc, 7.7% lead, 0.5% copper, 93 grams silver;

– hole 74 — 7.7 metres (from 154.1 metres) of 11.1% zinc, 7.6% lead, 0.3% copper, 61 grams silver.

Breakwater ended the first half of 2005 with net earnings of $6.4 million, off $100,000 from a year earlier. Revenue between the two periods jumped by 63% to $183.7 million on higher realized metal prices and increased concentrate sales (partially offset by a stronger Canadian dollar).

Shares in Breakwater were 0.5 higher at 42 in morning trading in Toronto following the news. The shares traded in a 52-week range of 32 to 78.